Damien O'Connor announces scope of dairy industry shakeup

Written by Gerard Hutching

A Government discussion paper on the future of the dairy industry says most of the rules governing it are still relevant but change is on the horizon.

Primary Industries opposition spokesman Nathan Guy said it while it was a wide ranging review, it would not be the last word on the matter.

"We'll be talking about DIRA for another 12 months and the true politics will be played out in Cabinet. Shane Jones has openly talked about splitting Fonterra apart.

"There's nothing specific in this document about splitting it but that's where the Government may want to take it," Guy said.

The discussion document on the Dairy Industry Restructuring Act has found:

* DIRA is still effective at managing Fonterra's dominance;

* it does not encourage inefficient industry growth or prevent Fonterra from pursuing a value-add strategy;

* but it prevents Fonterra from managing farmers' environmental performance;

* and provides access to regulated milk for large dairy processors for whom it may no longer be necessary.

DIRA was instrumental in the creation of Fonterra in 2001 and continues to ensure the dairy giant does not take advantage of its market dominant position.

When it was set up Fonterra had 96 per cent market share but that has fallen to 80.5 per cent.

Minister of Agriculture Damien O'Connor said that while dairy growth had been good for the economy, with dairy export receipts more than doubling in value since 2001, there had been a downside.

"The growth of the dairy industry has had negative effects on our environment, through increased greenhouse gas emissions, nitrate leaching, and the expansion of dairy into increasingly marginal land areas."

One of the contentious issues facing the industry is the question of open entry, whereby Fonterra has to accept all applications by dairy farmers to become shareholders.

The discussion paper offers three options: the status quo, a repeal of open entry, or amending it so Fonterra could reject an application to become a shareholder if the applicant was unlikely to comply with its terms of supply.

These terms could range from environmental (including climate change) impact of the production of milk, health and safety, animal welfare, or hygiene.

It also looks at the issue of whether Fonterra should continue to be required to sell up to 50 million litres of raw milk per season to all dairy processors, and whether Goodman Fielder would continue to be able to buy up to 250 million litres of raw milk per season from Fonterra on regulated terms.

Originally it had been expected Goodman Fielder - the major domestic competitor for Fonterra - would have obtained its own source of milk over time, but this has not happened.

The paper said environmental regulations had not significantly constrained the growth in dairying, which had increased pressures on the environment.

The resulting impacts had not been borne by farmers or dairy companies, but by society as a whole.

Fonterra said in a statement that DIRA was a complex piece of legislation and it was important to New Zealand that the review was thorough.

The deadline for submissions on the paper are February 8, with final recommendations to the Government in April, followed by law changes late next year.